Law:

Section:

Section 145 of the Income-tax Act, 1961 - Method of accounting - Estimation of profit - Assessment year 1958-59 - Assessee was following mercantile system of accounting - ITO rejected assessee's books of accounts and estimated income by adopting rate of gross profit - Whether amount of sales tax liability should not be excluded from gross turnover to arrive at gross profit disclosed in trading account - Held, yes Section 68, read with section 297(2)(d), of the Income-tax Act, 1961 - Cash credits - Assessment year 1958-59 - Whether section 297(2)(d)(ii) refer only to machinery provided in Act, for assessment of escaped income and it does not apply to substantive provisions of Act which creates rights or liabilities - Held, yes - Whether section 68 being substantive charging section, it could not be applied to case of reassessment governed by Indian Income-tax Act, 1922 - Held, yes FACTS The assessee was following mercantile system of accounting. The ITO rejected the books of account maintained by the assessee and proceeded to assess the income by adopting a rate of gross profit of 5 per cent. However, while making an addition, the ITO took the view that the gross profit shown by the assessee should have been reduced by an amount of the sales-tax liability. The ITO, thereafter, made addition to bring the gross profit to the level of 5 per cent. The ITO further found several cash credits for which he did not find satisfactoryexplanation. The ITO made addition of these credits as income from other sources. The AAC upheld the action of the ITO in not accepting the book results and in estimating the profits, but held that the sales tax liability was not to be deducted from the gross profit. Regarding the income from other sources, the AAC deleted the additions, made by the ITO. The Tribunal upheld the order of the AAC. On reference : HELD It is well settled that the moment a dealer made either purchases or sales which was subject to sales tax, the obligation to pay the tax arose. Although that liability could not be enforced till quantification was effected by an assessment proceeding, the liability for payment of tax was independent of the assessment. It is further…

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